CLASS Act seeks to bring long-term care insurance to the masses

Marcus Pickett

Long-term care insurance helps pay for care when you can no longer care for yourself. It can be an important safety net for the disabled and elderly who have too many assets to qualify for Medicaid.

However, many Americans fail to plan ahead for long-term care expenses -- or have trouble getting enough coverage if they have pre-existing conditions. One provision of the health care reform law would provide long-term care insurance to many who now are in the workforce.

The Community Living Assistance Services and Support (CLASS) Act is a voluntary, federally run insurance plan that is self-funded with collected premiums. It is part of the health care reform law.

The CLASS Act went into effect Jan. 1, 2011, but the U.S. Department of Health and Human Services still must determine final regulations before people can start enrolling. According to the health care reform law, these regulations must be in place by Oct. 1, 2012.

How does the CLASS Act work?

Once the program is implemented, there will be two ways to enroll in the CLASS program:

Employers may automatically enroll their employees and extract the premiums from their paychecks. Employees will have the right to opt out of the program, and employers can choose not to participate, according to the Kaiser Family Foundation.

When employers choose not to participate in the CLASS program, employees may apply on their own. Eligible participants must be at least 18 years old, actively working and not already living in a nursing home or similar facility.

Nobody can be denied or charged higher premiums based on pre-existing conditions. But enrollees would have to pay into the system for at least five years to reap the benefits of the program, according to Kaiser.

These benefits would come in the form of daily cash payments after someone becomes disabled. Daily cash payments would be between $50 and $75, depending on whether the beneficiary lives in the community or in an institution, according to the Congressional Budget Office (CBO).

To get the benefits, a qualifying disability must make the participant unable to perform two or more activities of daily living. Or the participant must have a cognitive disability that creates a comparable disability level.

How much will premiums be?

Premiums have not yet been officially established. But CBO estimates that they will average about $123 a month to begin with and then rise with inflation. Certain groups, like full-time students and those below the federal poverty level, would be eligible for reduced premiums, according to Kaiser.

Criticisms and defense of the CLASS Act

Maintaining the program through premiums has raised some concerns, as keeping it solvent may require raising premiums. But the CLASS Act includes restrictions that could make this difficult, including a rule that premiums cannot be raised for those older than 65 who have paid into the system for 20 years or more, according to a briefing paper from actuarial and consulting firm Milliman.

Moreover, according to conservative think tank the Heritage Foundation, the program raises concerns of adverse selection (a problem always has plagued the health insurance industry). Those who are healthy could opt out, leaving only those who have health problems and who anticipate needing benefits. If this happens, the cost of the program -- and premiums -- would rise.

In its "Moment of Truth" report, the President's National Commission on Fiscal Responsibility and Reform pointed out that for "modest premiums," enrollees would receive benefits "many times larger," which raises questions about sustainability. As a result, the commission proposed reforming or appealing the CLASS Act.

Health and Human Services Secretary Kathleen Sibelius responded to such criticisms by acknowledging in a briefing for the Kaiser Family Foundation that the CLASS Act has "unresolved issues." However, she argued, the law contains enough flexibility to make it successful and fiscally sound. In commending Sebelius' remarks, Jim Furman, president and CEO of the National Council on Aging, noted the CLASS Act would help prevent tomorrow's seniors from experiencing the plight of today's seniors, who often "have no choice but to spend down into poverty."